A working capital loan is short-term business funding used to finance a company’s day-to-day operations, like buying inventory or covering payroll. Common small business working capital loans are lines of credit, term loans, invoice financing, and merchant cash advances. We reviewed working capital loan providers on costs, terms, and qualifications to identify the top six.
On December 27, 2020, the federal government authorized an additional $284.5 billion in funding for the Paycheck Protection Program (PPP). Under this new allocation, PPP loans are available to first-time borrowers as well as businesses that have already received one PPP loan. Similar to prior funding rounds, this allocation will likely be depleted quickly. We recommend submitting an application through Lendio, a broker that has handled—and received funding for—thousands of PPP loans since the program’s inception.
Top 6 Small Business Working Capital Loans 2020
| Loan Amount | Best For | |
|---|---|---|
| $500,000 | (Best Overall) Businesses with good credit needing fast financing and low rates | |
| $500,000 | Companies needing funding that’s fast, affordable, and available to startups | |
| $5 million | Businesses needing to quickly borrow against their invoices | |
Funding Circle | $500,000 | Creditworthy businesses needing low rates on loans up to five years |
$250,000 | Borrowers with poor credit who frequently get paid with credit cards | |
| $350,000 | Borrowers needing working capital for up to 10 years with low rates |
What Working Capital Loans Are
Small businesses needing to finance day-to-day expenses like payroll and inventory rely on working capital loans. Working capital loans aren’t used for large projects or the purchase of long-term assets because of their relatively shorter repayment terms. Depending on the need, there are several financing alternatives available to small businesses.
The most common types of working capital loans including what they are and who they’re best for are:
- Term loan: Term loans offer small businesses a lump sum of capital that is usually repaid over the course of at least one year. It’s best for businesses needing to finance a large expense like renovations or needing the extended repayment terms to manage their cash flow. It’s also the most common form of financing for small businesses.
- Line of credit: When your business has a recurring cash flow issue, a line of credit is the best financing option. This is because, with a line of credit, you don’t have to apply for additional financing; instead, you can reuse the credit every time you repay the loan. You also only pay for the funds you borrow, which can reduce your overall costs.
- Invoice financing: If you find that your cash flow shortages are caused by outstanding customer invoices, then invoice financing may be a good option for your business. You can get funding based on your outstanding invoices, which is often less expensive than borrowing outright with another option; however, only 3% of businesses finance invoices.
- Merchant cash advance: It’s an expensive option, but if you are unable to qualify for another form of financing, then a merchant cash advance may be your only choice. Requirements are usually easier to meet, with 60% of applicants getting approved, but a significant portion of your revenue needs to come from credit card transactions.
By identifying the financing that your business needs, you’ve already done most of the work. A recent study showed that getting the working capital financing you need is directly correlated with growing your business. Whether your business needs a term loan, a line of credit, invoice financing, or a merchant cash advance, we’ve selected the best lenders in each category for you to choose from.
How We Evaluated the Best Working Capital Loan
In evaluating the best working capital loan, we considered a variety of financing types. We also kept top of mind small business owners’ desires to access fast business loans. We also considered that costs and borrowing qualifications vary by circumstance. Regardless of your situation, small business working capital loans are available to you.
The criteria used to evaluate the best working capital loans for small businesses:
- Loan amount: How much each working capital loan provider will lend to you.
- Rates and fees: What interest rates, costs, or fees you can expect each lender to charge when providing you with a business working capital loan.
- Speed to funding: How quickly the small business working capital loan provider will grant you access to the funds you need.
- Minimum qualifications: What factors the lender considers when evaluating your business as a potential borrower, and how quickly you’ll be approved. This includes whether you can get a business loan with bad credit and as a new or small business.
- Repayment terms: How long will each provider give you to repay your loan and under what repayment schedule.
- Collateral requirements: What collateral you’ll be required to provide as security for the loan.
- Guarantee requirements: If the provider will require a personal guarantee from you.
Based on these criteria, OnDeck is our top choice for small business working capital loans. This is because prime borrowers (680 or higher credit score) can benefit from rates as low as 9%. OnDeck offers some of the longest unsecured repayment terms. Plus, you can also get a small business line of credit for short-term recurring working capital needs.
The top six companies offering working capital loans are:
OnDeck: Best Overall Small Business Working Capital Loan
OnDeck working capital loans are best for prime borrowers (680 minimum credit score), with rates as low as 9% (overall expected APR of 10% to 100%). Plus, OnDeck offers some of the longest repayment terms of up to 36 months. If you also need a working capital line of credit, with a 600 or higher credit score, you can get up to $100,000 from OnDeck.
OnDeck Working Capital Loan Rates & Fees
OnDeck’s interest rates for its working capital term loan start at 9% simple interest (10% to 100% expected APR). Prime borrowers can benefit from OnDeck’s low starting interest rates. While there is no prepayment penalty, you’re responsible for the full interest charge if you pay early (although you’ll likely receive a prepayment discount on the interest).
OnDeck is transparent with its loan pricing and it makes its weighted average rate for loans available on its site. Based on the possible APRs for a loan, you can expect a $10,000 to cost between $2.70 and $27.40 in daily interest for every $10,000 you borrow.
OnDeck Working Capital Loan Terms
OnDeck offers two working capital business loans: a shorter-term, fast-working capital solution (three to twelve months) and a longer-term working capital loan (15 to 36 months). Its term loans feature loan amounts up to $500,000, like LoanBuilder, and has daily or weekly payments.
OnDeck Working Capital Loan Minimum Qualifications
At a minimum of 600, the credit score qualifications for OnDeck’s working capital term loan products are comparable to its top competitors like Kabbage. It also requires that you only be in business for one year with $100,000 in annual revenues. While that isn’t ideal for startups, most small businesses can meet these qualifications.
What OnDeck Is Missing
While OnDeck offers some of the lowest starting interest rates on this list to prime borrowers, it also charges origination fees of 0% to 5%, unlike some other providers. Also, if you pay your loan early, you’re responsible for paying a fee in the form of interest you would have paid over the term of the loan. This differs from the other providers on our list, except LoanBuilder.
What Users Think About OnDeck
Based on OnDeck user reviews from around the web, we determined it has positive ratings. Users who provided positive feedback said the financing process was easier and quicker because of OnDeck’s professional and friendly customer service. Users critical of OnDeck mentioned its costly fees compared to similar lenders.
How to Apply with OnDeck
An OnDeck application offers small business owners the option of connecting a business bank account or providing recent bank statements for income verification. Once OnDeck has confirmed the identity of the small business owner and the existence of the business it can provide an approval decision within hours.
LoanBuilder: Best Working Capital Loans for Startups & New Businesses
LoanBuilder is the best for startups and new businesses with at least nine months’ operations wanting repayment terms of 13 to 52 weeks on working capital loans for small businesses up to $500,000. This provides good flexibility for borrowers to meet their cash flow needs. Plus, LoanBuilder’s pricing has no hidden fees. The expected APR is 12% to 136%, which is slightly higher than OnDeck.
LoanBuilder Working Capital Loan Rates & Fees
LoanBuilder offers single fixed fee loan pricing (called a total interest charge) on its working capital business loans. While there are no prepayment penalties, as with OnDeck, you don’t benefit from paying early. Your total interest charge is determined at the time your loan is originated based on your repayment terms, and is due even if you pay early.
LoanBuilder does not disclose its rates before you apply. Based on the expected APR, a $10,000 loan will have a daily interest cost between $3.30 and $37.30, which is higher than OnDeck.
LoanBuilder Working Capital Loan Terms
LoanBuilder provides the most customizable terms of the providers on our list. You can choose the repayment term (13 to 52 weeks) that allows you the flexibility to meet your business working capital needs. If you want a lower fee, a shorter repayment term is a better option. If you want a lower payment, you might opt for a longer repayment term.
LoanBuilder Working Capital Loan Minimum Qualifications
Besides the above factors, your business must not have filed for bankruptcy, needs to be located within the United States, and have an active business record with your local Secretary of State. These minimum qualifications compare favorably to the other fast working capital solutions we reviewed, with annual revenue and time in business requirements that are lower than most of the providers on our list.
What LoanBuilder Is Missing
While LoanBuilder offers a high funding amount on small business working capital loans up to $500,000, its maximum repayment terms are only 52 weeks. If you need longer to repay, you might be better off working with OnDeck, which offers up to 36 months. Also, with LoanBuilder, you don’t benefit from paying early, as you owe the total interest charge regardless of when you finish paying.
What Users Think About LoanBuilder
We compiled LoanBuilder user reviews from around the web, which are generally positive. Customers who provided positive reviews said LoanBuilder’s process was quick and efficient, and its representatives were responsive to requests. Customers who left negative reviews for LoanBuilder said the pricing is too expensive.
How to Apply with LoanBuilder
LoanBuilder offers small business owners an online application that requires business bank statements and basic personal and business information. It provides business owners with several repayment term options and corresponding rates and weekly payments. Business owners can select the best option and receive funding as soon as the next business day.
BlueVine: Best Working Capital Loans Based on Invoices
A BlueVine accounts receivable financing working capital loan is best for businesses with unpaid invoices within 90 days. Small business working capital loans from BlueVine feature short-term loan amounts up to $5 million, the largest of those we reviewed, and starting weekly rates of 0.25%. BlueVine also offers a small business line of credit up to $250,000, and you could potentially get both loan types.
BlueVine Working Capital Loan Rates & Fees
There are no origination fees or prepayment penalties with BlueVine. This differs from OnDeck, where you’ll pay both an origination fee and a termination fee. With OnDeck, the increased fees compared to BlueVine are offset by lower interest rates starting at 9% for prime borrowers (680 or higher credit score).
Based on the weekly discount rate provided by BlueVine, we calculated the expected APR to be between 13% and 70%. This means that for every $10,000 in invoices that you finance, you will be charged between $3.60 and $19.20 in interest per day.
BlueVine Working Capital Loan Terms
BlueVine offers an advance rate of 85% to 90% on its invoice financing working capital business loan. You can receive advances on $5,000 to $5 million in monthly invoices. BlueVine provides the largest working capital loan of all the providers we reviewed, and you don’t have to reapply for additional funds. Instead, you can keep financing invoices after the initial ones are paid back.
BlueVine Working Capital Loan Minimum Qualifications
The minimum requirements for the time in business are the lowest that we evaluated for our list. This is because your loan is effectively backed by your outstanding invoices. Qualifying with BlueVine begins with its 10-minute online application. If you connect BlueVine to your QuickBooks, Xero, or FreshBooks accounts, that’s all the additional information it typically needs to get you qualified and approved.
What BlueVine Is Missing
BlueVine offers the highest funding amounts on our list, up to $5 million. However, to qualify, your business must invoice other businesses or governments. If you don’t invoice business-to-business (B2B) customers, then a working capital loan based on invoice factoring from BlueVine won’t work for your business. You could, however, still get a fast working capital solution from BlueVine, as it also offers a small business line of credit and term loan up to $250,000.
What Users Think About BlueVine
We look at BlueVine reviews by users from around the web and determined it generally has positive ratings. Positive BlueVine reviews came from customers who were impressed with its responsive customer support team. Critical BlueVine reviews came from businesses unhappy about being denied financing.
How to Apply with BlueVine
Business owners can connect a business bank account and provide some basic information to complete an application with BlueVine. BlueVine can provide an approval decision and potentially funding the same business day.
Funding Circle: Best Medium-term Business Working Capital Loans
Funding Circle is a great peer-to-peer working capital loan option for creditworthy businesses needing medium-term loans (up to five years) with low rates and monthly payments. Funding Circle doesn’t have a minimum credit score requirement, but you should have a score of at least 620 to qualify. The best-qualified borrowers receive interest rates as low as 4.99% on working capital loans up to $500,000.
Funding Circle Working Capital Loan Rates & Fees
Funding Circle’s pricing is among the most transparent of the working capital lenders we reviewed. Well-qualified borrowers benefit from interest rates as low as 4.99%, which is potentially the lowest of the providers on this list. Your interest rate is determined during the underwriting process based on your creditworthiness and repayment term. The shorter the term you choose, the lower the rate you’ll receive.
Funding Circle Working Capital Loan Terms
The working capital loan repayment terms offered by Funding Circle are the longest of the providers we reviewed, other than the SBA loan offered by SmartBiz. While an SBA loan may have longer terms, you must offer collateral. With Funding Circle, you can potentially be given up to five years to repay with no collateral other than a blanket UCC filing on your business assets.
Funding Circle Working Capital Loan Minimum Qualifications
Funding Circle Business Loan | |
|---|---|
Minimum Credit Score | At least 620 |
Time in Business | At least two years |
Annual Business Revenue | At least $120,000 |
Working capital business loans from Funding Circle are more difficult to qualify for than some other providers because they are peer-to-peer loans. This means you’ll be funded by a variety of investors in a single fast working capital solution provided by Funding Circle. However, the qualifications are still favorable when compared to the other working capital lenders we reviewed.
Unlike most of the other providers, you’ll be required to provide documentation, such as tax returns, to Funding Circle. One of its primary considerations will be if you can repay the loan based on your cash flow for the prior two years. While Funding Circle doesn’t specify a minimum debt service coverage ratio (DSCR), 1.25 times or better is generally considered acceptable.
What Funding Circle Is Missing
Funding Circle offers some of the lowest rates we evaluated, with starting interest rates of only 5.99%. However, the funding time with Funding Circle is slower than OnDeck, taking about six to 10 days to get funding. If your business needs funding quickly of up to $500,000, consider working with LoanBuilder or OnDeck instead.
What Users Think About Funding Circle
Users who recommend Funding Circle appreciated the quick and easy application process, and the transparent fees. Users critical of Funding Circle complained about the level of documentation required.
How to Apply with Funding Circle
Funding Circle requires several years of tax returns in addition to business bank statements and additional documentation. While the application is a bit longer than other providers, it offers lower rates and can provide funding in less than one week to approved borrowers.
National Funding: Best Working Capital Loan for Businesses With Poor Credit
National Funding’s merchant cash advance product is a good working capital loan solution for businesses with poor credit that accept credit cards and have exhausted their other options. This is because you can receive advances up to $250,000 with no minimum credit score requirements at 35% to 150% APR. National Funding provides same-day approvals with funding in 24 hours.
National Funding Working Capital Loan Rates & Fees
Since merchant cash advances provide quick funding even to borrowers with poor credit, the typical loan rates charged by National Funding are higher than the other options. National Funding’s loan has no hidden fees, but you need to contact National Funding directly for a customized quote to get the specifics.
The estimated APR for National Funding is based on similar merchant cash advance providers that make their rates available. Unfortunately, National Funding doesn’t provide rates but based on these estimates, you can expect to pay daily interest between $9.60 and $41.00 for every $10,000 you borrow, which is the highest potential rate we evaluated.
National Funding Working Capital Loan Terms
As with its loan rates and fees, National Funding’s typical loan terms for its merchant cash advance product aren’t readily available. The best option is to reach out to National Funding for a customized quote. Since approvals are typically granted the same day, finding out the terms it is willing to offer should be easy.
National Funding Working Capital Loan Minimum Qualifications
National Funding’s merchant cash advance product is a fast working capital solution for businesses with poor credit that accept credit card payments. While you’ll pay more than with the other small business working capital loans we reviewed, the qualifications are much easier to meet.
What National Funding Is Missing
National Funding enables borrowers with low or no personal credit scores to qualify for a working capital loan. However, a merchant cash advance (MCA) is an expensive option, and so the rates National Funding charges are a drawback. However, if you can’t qualify for other types of working capital business loans, it can still be a good option. A National Funding merchant cash advance is a way to get started on improving your credit situation.
Also, National Funding only offers merchant cash advances to companies that have been in business for at least a year. While it offers financing for companies with poor credit, it’s only an option if your business is already established. If you’re a newer business and have poor credit, take steps to improve your personal credit score.
What Users Think About National Funding
We compiled National Funding user reviews from around the web and determined that it has a mix of positive and negative ratings. Customers who gave National Funding positive feedback said that the application process was quick and easy. Some customers who gave National Funding negative reviews complained about the high interest rates charged for financing.
How to Apply with National Funding
Because of the high cost up to 150% APR and potential cash flow strain, merchant cash advances are only recommended if your other options are exhausted. Small business owners must submit basic information and credit card receivables to be approved for funding.
SmartBiz: Best Long-term Small Business Working Capital Loans
SmartBiz SBA working capital loans are good for borrowers with long-term capital needs (e.g., buying equipment) who don’t need immediate funding. Since SBA loans have the lowest rates (estimated at 7.5% to 11.00%) with the longest repayment terms, they’re ideal if you can wait 30 or more days for funding. SmartBiz can fund working capital SBA loans up to $350,000 within 30 days.
SmartBiz Working Capital Loan Rates & Fees
SmartBiz SBA Loan | |
|---|---|
Interest Rates | 7.5% to 11.00% |
Expected APR | 7.5% to 11.00% |
Origination Fee | Up to 4% |
The Small Business Administration (SBA) sets the maximum interest rates that banks can charge on 7(a) loans. The current estimated SBA rates range from 7.50% to 11.00%, depending on the size of the loan and the amount being borrowed, which is the lowest maximum rate on our list. As with the loan rates for all providers, the SBA loan rate range fluctuates regularly based on the prime rate.
SmartBiz Working Capital Loan Terms
SmartBiz can provide fast SBA 7(a) working capital loans for small businesses up to $350,000 within 30 days, which is the lowest limit on our list. If you want a working capital loan from the SBA greater than $350,000 and up to $5,000,000, a traditional bank is a great source of this financing.
SmartBiz Working Capital Loan Minimum Qualifications
SmartBiz SBA Loan | |
|---|---|
Minimum Credit Score | At least 650 |
Time in Business | At least two years |
Annual Business Revenue |
The minimum requirements to qualify for SBA working capital business loans with SmartBiz are the highest on our list besides Funding Circle. This is due to the additional requirements imposed by the SBA to receive a guarantee, and the long terms offered by the loan.
Other Products Offered by SmartBiz
There are several types of SBA loans, but the most common one is the standard 7(a) loan. The 7(a) loan can be used for working capital, buying a business or a franchise, refinancing debt, real estate, and any other valid business purpose up to $5 million. SBA 504, or Certified Development Company (CDC), loans are available for borrowers who want to purchase commercial real estate, equipment, or machinery.
What SmartBiz Is Missing
SmartBiz is the fastest way to get an SBA loan available, taking only 30 days, compared to the typical time frame of one to three months. With the other small business working capital loans, you can get financing in 24 hours to 10 business days. For faster funding with similar rates, consider Funding Circle instead.
What Users Think About SmartBiz
We compiled SmartBiz user reviews from around the web and we determined that SmartBiz generally has positive ratings. Customers who gave SmartBiz positive feedback said getting an SBA loan through SmartBiz is much quicker than applying directly through a traditional bank. A few customers who were critical said the amount of paperwork required is similar to traditional banks.
How to Apply with SmartBiz
Business owners can complete an initial application with SmartBiz online but must submit multiple rounds of paperwork to get approved for an SBA loan. This paperwork includes bank statements, financial records, and other forms required by the SBA. The total time from application from funding is usually at least 30 days.
Bottom Line
For a growing business, having access to working capital is critical. We’ve discussed the best small business working capital loans in this article, and most businesses will find a good fit with one of the companies we reviewed.
OnDeck is our top choice for small business working capital loans. Prime borrowers (with a 680 or greater credit score) can benefit from some of the lowest rates (as low as 9%). OnDeck also offers some of the longest unsecured repayment terms (up to 36 months). Plus, borrowers with credit scores as low as 600 can potentially qualify. Get prequalified in 10 minutes and funded in a day.
Mike
What kind of loan would you recommend for an existing profitable business that is just going through a rough patch. Its a software company. Thanks
Marc Prosser
Hi Mike, The answer to that questions depends on you / your business (years in business, revenues, industry, business and personal credit scores) and what you want (amount of loan, length term of loan). If your business qualifies, my top suggestion is almost always an SBA loan https://fitsmallbusiness.com/sba-loan-rates/ Good luck, Marc Prosser
Matt Klein
Thanks for the comprehensive article with links. Many of these are helpful by providing useful intel and painting the full picture. I think of particular value are the video testimonials in Factoring University as it’s actual business owners stating cash flow problems and solutions. Very valuable indeed.
FitSmallBusiness
Thanks for the comment and compliment Matt much appreciated. One of our goals here is to try and include as much about what you need to know to get each step of the process done as possible. There is a lot of good information out there already so instead of recreating it from scratch we try to add what is not there and link to what already is there.
Hope to see you around the site again in the future!
Best Regards,
Dave
Steve Freeman
Glad to see you included factoring, most small business owners are not aware of it!
When it comes to funding a small business many owners use a credit card, they may even pay it off every month. One thing to watch out for is to ensure you use no more than 50% of your available credit line. Banks hate to see someone always using just upto their limit. As far as they are concerned it means if you have one poor month you would go out of business. This does have an impact on a credit rating score.
FitSmallBusiness
Hi Steve,
Thanks for reading and for the comment that’s a good tip!
Best Regards,
Dave
Guest
Great article providing very useful information to growing small businesses. It’s important to know you’re not alone when you need some cash for inventory, hiring, etc! We’re glad you think Kabbage is a better alternative to traditional merchant cash advances; we were founded because we knew current options just weren’t good enough. Now you can get cash with us in 7 minutes or fewer! -CE, Kabbage
FitSmallBusiness
Thanks for reading and for the comment CE! Best Regards, Dave
Kabbage
Great article providing very useful information to growing small businesses. It’s important to know you’re not alone when you need some cash for inventory, hiring, etc! We’re glad you think Kabbage is a better alternative to traditional merchant cash advances; we were founded because we knew current options just weren’t good enough. Now you can get cash with us in 7 minutes or fewer!
Thanks again.